TARP saved the American economy

Four years ago this week, the U.S. was on the brink of financial collapse. "If we don't do this (bailout), we may not have an economy on Monday," Federal Reserve Chairman Ben Bernanke, not known for being an alarmist, warned participants in a crisis meeting on Sept. 18, 2008. Soon afterward, President George W. Bush put the situation even more bluntly: "If money isn't loosened up, this sucker could go down."

Congress went on to pass the Troubled Asset Relief Program over the heated objections of opponents, who predicted that the bailout money would disappear down a black hole, never to be seen again.

Well, guess what? With the government's sale last week of $20.5 billion of stock in troubled insurance giant AIG, the much-maligned TARP is inching closer to the break-even point. When the remaining equity holdings are sold, a modest profit from TARP now is almost certain.

Put simply, the bailouts worked. True, in some cases the government did not do a very good job with the details, and taxpayers are out $142 billion in connection with the non-TARP takeovers of housing giants Fannie Mae and Freddie Mac. But it's time for the economic purists and the Washington cynics to admit that government can occasionally do something positive, at least when faced with a terrifying crisis. And it's time for voters to look back at who got it right and who got it wrong. For those keeping score at home, here's where the main sections of TARP stand:

» Banks. Some 707 banks got government cash injections in return for stock and warrants. Some desperately needed help; others did not but were told they had to take part so as not to draw attention to those that did. Though 300 institutions, mostly small ones, have yet to rid themselves of government involvement, the vast majority of the money put in has come back. In fact, a $20.6 billion profit has already been realized on a $245.1 billion investment. What's more, the banking industry is much better capitalized than it was four years ago, making it more able to withstand a financial crisis or deep recession.

» AIG. In 2008, anyone arguing that the taxpayers would break even on this deal would have been dismissed as delusional. The insurance giant that backstopped pools of toxic mortgages was so desperate that it needed a $112 billion loan from the Fed even before TARP was enacted. Once passed, AIG got an additional $70 billion in equity investments. Today, the Fed loan has been repaid, with interest. After the $20.5 billion stock sale, the government claims a $15.1 billion profit. And it still owns 22 percent of the company's common stock.

» Detroit. Not only did GM and Chrysler survive the credit crunch, the bankruptcy restructuring they were forced through made them much more competitive. On the downside, the government showed little spine at the bargaining table. As the financier of last resort to the two automakers (plus Ally Financial, the former GMAC), Washington should have gotten paid back before other creditors. That didn't happen. Taxpayers are still $38.9 billion in the hole on a $79.7 billion investment. But future stock sales will recoup some of that money. If the carmakers had imploded, the costs of guaranteeing pensions and paying jobless benefits would have been enormous.

Critics continue to argue that bailouts carry hidden costs and create a "moral hazard" that encourages risky behavior in the future. They have a point, mostly an academic one.

Four years after the financial crisis hit, growth remains unacceptably sluggish. But at least "that sucker" -- otherwise known as the U.S. economy -- didn't go down. And for that, you can largely thank TARP.

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TARP saved the American economy

Four years ago this week, the U.S. was on the brink of financial collapse. 'If we don't do this (bailout), we may not have an economy on Monday,' Federal Reserve Chairman Ben Bernanke, not known for